I finally have an update on using the $8000 credit towards your down payment and closing costs on FHA loans. HUD sent out a mortgagee letter May 29th that gives basic information on the first time homebuyer credit and also guidance on how FHA approved mortgagees may assist homebuyers that are eligible for the credit.
There are several conditions that FHA will require before you can use the money for down payment. The most important is that you cannot use it towards the initial 3.5% down payment. Those funds must still be your own money or gift money from a family member. You may use the credit towards additional down payment or closing costs. The tax credit cannot result in cash back to the borrower. The borrower must submit a signed certification that hte tax credit is not subject to offset due to other indebtedness.
The IRS will not issue the credit to anyone other than the taxpayer. In order to use this money for closing, mortgage companies and FHA-approved non profit agencies will issue a secondary lien against the property in the amount of the tax credit. The companies can charge for the purchase of the tax credit – not to exceed 2.5%. (Example: $6000 to be issued by the IRS, the fees and costs charged to the buyer by the nonprofit or mortgage company could not exceed $150.oo) . A copy of the IRS form 5405 must be collected and retained by the mortgage company.
The credit would be considered a second mortgage and the borrower would have to pay it back as soon as they receive the credit from the IRS. The second mortgage can be silent (requiring no payment) or require a monthly payment from the borrower. If payments are required, they must be included in the qualifying ratios and cannot exceed the borrowers reasonable ability to repay the loans. If payments are deferred for 36 months, they do not need to be included in the qualifying ratios. If the tax credit advance loan has a short term for repayment, it must also provide taht if the borrower fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a "soft" second.
What all this means is that you may be able to access the tax credit to use at closing. It can only be used for closing costs and additional down payment, you still need your original 3.5% down.
Leslie Vanderwerf, Advisors Mortgage - lvanderwerf@advisorsmtg.com – Website
